In this article, we'll debunk some of the biggest Bitcoin energy myths. The last part of this series will lay out the case for mining BTC to revolutionize energy production. But that is for another day. Today, we cover the seven biggest energy myths for the largest and oldest cryptocurrency and why they are wrong.
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Myth #1: Bitcoin mining has a big carbon footprint.
According to Digicoinomist, BTC mining has the carbon footprint equivalent of Colombia:
That sounds bad but lacks context. First, Colombia's carbon footprint in 2018 only ranked 45th compared to the world’s biggest "polluters." Colombia made up 0.4% of the world's carbon emissions. In comparison, China's carbon footprint is 150x bigger, the U.S.' is more than 50x bigger, and even Poland's is more than 4x bigger. Natural gas flaring has a 10X bigger carbon footprint than BTC mining and generates no benefit if the excess energy isn't put to use.
Second, one can argue that BTC mining is judged on a moralistic basis for no reason. The reasoning goes something like this:
“BTC only good for speculation > Mining uses a lotta energy > More speculators bad, more miners bad.”
Even if we assume that all Bitcoins are used for speculative purposes all of the time (which they aren't), this argument is flawed. For two reasons.
First, what would be the carbon footprint if speculators used something other than BTC? What if all the money went to casinos? Horse racing? Critics pretend that mining generates a carbon footprint where otherwise there would be none, but that isn't true. All of these other speculation-driven sectors also have a carbon footprint. No one has ever inquired into the emissions of lotteries or sports books to the extent of Bitcoin’s.
Second, we can't weigh Bitcoin's positive externalities (store of wealth, peer-to-peer money transfers) against its negative ones (mining). How do you quantify the intangible value created by BTC? And how do you compare it to its negative externalities? It's near impossible to make a rational case for either side. Somehow, though, the traditional financial industry does not get held up to the same standards.
Myth #2: Bitcoin crowds out other sectors through mining and increases electricity costs.
Stories like this one are music to the ears of Bitcoin haters. However, one upstate New York town's story from several years ago is an anecdote and not hard data that shows a pattern. This argument also disregards two important acts.
First, miners are by design incentivized to seek the cheapest energy source. That's why mining with flared gas is so attractive or mining in countries like Kazakhstan with low electricity costs. But most of the time, miners will not compete with retail consumers' demand for electricity.
Second, failing power grids due to excess demand is market feedback. Bitcoin miners simply found a market inefficiency (cheap electricity) and closed it. In fact, Bitcoin miners provide valuable feedback. With correct regulation, you could even tax miners and redirect tax income to overhaul the grid.
Myth #3: Bitcoin mining is bad for the power grid.
We clarified that miners can't be blamed for poor infrastructure. But do they contribute to overloading it?
Not necessarily. For instance, Texas miners turned off their rigs during a recent heatwave. Since mining rigs can be shut down at very short notice (think minutes), they can react in real-time to electricity demand. If anything, Bitcoin mining is good for the grid since it helps smooth out demand. We'll cover in the next article how exactly.
Myth #4: Bitcoin mining is bad for vulnerable communities.
This study argues that BTC mining takes advantage of "economic instabilities, weak regulations, and access to cheap energy and other resources."
That is fair enough, but don't you think the solution is to...fix the economic instabilities and weak regulations?
To reiterate a point already made: miners merely provide market feedback. One solution is not to ban market participants, but to improve the market's rules. Furthermore, a "worldwide ban" on mining is highly unrealistic since countries are incentivized to defect and capture the economic rents from miners looking for cheap electricity.
Myth #5: Bitcoin mining is becoming less green.
This study extrapolates a short-term trend (miners migrating from China to the U.S.) to conclude: Bitcoin mining is even morebad!
However, if we look closer at the data, we can discern only two strong trends clearly:
Mining with nuclear energy is rising, as is mining with natural gas. Mining with coal (very dirty, very bad) has been oscillating between 30% and 50%, but there's no clear trend. Mining with hydroelectric energy is in a slump, but it's been there before and recovered. Overall, the substitution of "hydroelectric BTC" for "natural gas BTC" could be systemic or just a short-term trend.
Moreover, we established that the carbon footprint of BTC mining is a rounding error in the grand scheme of things. An increase of 17% from a tiny base is still a tiny number. So, this argument could be considered at least highly misleading.
Myth #6: Bitcoin uses a lot of energy per transaction.
This is another go-to argument of critics. However, it conflates the concept of marginal energy usage and overall energy usage. Lyn Alden explains this well with the following analogy (paraphrased):
Your laundry machine uses the same amount of energy, regardless of whether it's full or not. The same way, mined BTC blocks use the same amount of energy, regardless of whether the blockspace is used or not.
You can be angry at your laundry machine for being a polluter. You can choose to wash by hand, or you can think that washing your clothes is morally wrong in the first place. But the added pair of dirty socks does not increase or reduce CO2 used per washed sock.
So no, you can't measure BTC energy usage linearly.
Myth #7: Bitcoin mining is inherently wasteful.
The final argument is mining is just wasteful and we should use other, already existing alternatives for storing value and transactions.
Is that true?
Firstly, energy does not equal electricity. Even if BTC mining nominally uses a lot of electricity, this isn't a problem if electricity is abundant and, even better, clean. We can solve the latter with regulation, and we have to solve the former regardless of mining bitcoin.
Second, Bitcoin's market competitors are no better in terms of their environmental impact. In fact, mining gold and running bank branches leaves a bigger carbon footprint than mining bitcoin. Hass McCook went deep in his 10-part piece on the cost and sustainability of BTC, but the most important quotation is:
"Bitcoin consumes/emits less than half of what the gold mining industry does, and less than one fifth of what Bank branches and ATMs do."
So this one's also misleading, if not plain wrong.
No, Bitcoin mining is not all peaches and cream.
Yes, Bitcoin mining generates a carbon footprint.
However, we should discuss the pros and cons of Bitcoin mining in a level-headed way. The facts are that the long-term effects of mining on the power grid are little understood. Bitcoin mining absolutely could become a way to price a negative externality like flared gas.
But can it do so at scale? And could Bitcoin mining change the way we produce electricity? What role do policymakers and regulations play?
We'll answer all of those questions in the final installment of this mini-series.
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